Terex Corp (TEX) 2002 Q4 法說會逐字稿

Good morning. At this time, I would like to welcome everyone to the Terex Corporation fourth quarter, year end 2002 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. If you would like to ask a question during this time, simply press star then the number 1 on your telephone keypad. If you would like to withdraw your question, please press the pound key. Thank you.

I would now like to turn the call over to Mr. Ronald DeFeo, Chairman and CEO of Terex Corporation. Sir, you may begin your conference.

Thank you and good morning. With me this morning is Phil Widman, SVP and CFO for the company. And Kevin O'Reilly, Vice President of Investor Relations and Corporate Communications. Several members of the management team will be available on the call to answer questions. Bob Wilkerson, Colin Robertson, and Thys de Beer, representing their respective businesses.

At the close of our remarks, we will open it up to questions, and I'd like to encourage people to have one question and one follow-up only, please. Obviously, we are trying to be time sensitive here.

Playback information is available. The domestic number is 800-642-1687, international 706-645-9291, conference ID number 8303014. That will be available until Tuesday, February the 25th at 6 p.m. Eastern time.

Now let me open this up and thank you for your interest in Terex today. First, about 2002.

2002 was a year of tremendous change and progress for Terex. We achieved a number of milestones, and we had a few notable disappointments. Progress always carries the burden of failure, but the net position that we are in today is stronger than ever, and we are optimistic about 2003 because of what we are doing, not because of the markets we are in.

Net income excluding special items that we will detail, was $46.8m for 2002, versus $40.1m in 2001, or a 17% increase. Earnings per share was $1.06 versus $1.39 during the prior year, reflecting an average share count increase of over $15m year-over-year and the 20 million additional shares that have been issued since October 2001. Net debt to total capitalization, adjusted for the SFAS goodwill, was basically unchanged year-to-year despite the doubling in the size of the company.

We also added some great franchises to Terex. Genie and Demag are terrific additions, and we solidified our position as the number three global player in the construction and mining equipment business. This market position will give us future leverage.

We had three primary disappointments looking at earnings from 40,000 feet. Atlas, CMI, and Mining. Each eroded our earnings per share by 15 to 20 cents per share for the year. In each area we have action plans in place to recoup some, if not all, of these issues in 2003.

We have a stronger company. There is uncertainty in our markets today, we will concentrate on fundamentals in 2003 and harvest the value in our franchises, irrespective of a recovery. We have grown rapidly but generally made some smart financial and strategic acquisitions.

Finally, we have the management team in place to get the job done. Now I'll turn it over to Phil Widman, who will cover the specifics for the quarter and year, and I'll return to give a detailed review by sector. Phil?

Thanks, Ron, and good morning. Before I begin, let me remind you that we will discuss expectations of future events and performance as a company on today's call and that such expectations are subject to uncertainties related to macroeconomic factors, interest rates, governmental actions, and other factors. A fuller description of these that affect future expectations is included in the press release and our other public filings. I encourage you to read them.

For the fourth quarter, Terex reported a net loss of $40.3m, or 85 cents per share, compared to net income of $1.6m, or 5 cents per share in the fourth quarter of 2001. Excluding the impact of special items, net income for the fourth quarter was $5.4m, or 11 cents per share on sales of $847.1m compared to $4.6m, or 14 cents per share on sales of $439.4m in 2001.

In our press release we have provided additional information in the financial summary related to our performance excluding the recent acquisitions and special items. The net charge after tax for the fourth quarter of the special items totals $45.7m and includes the following items.

First, restructuring activities, which were previously announced, of $37.3m, including acquisition-related facility and product rationalization, compact equipment-related facility closures, and businesses to be exited and further product rationalizations.

Secondly, the impact of $2.7m from the fair value accounting of inventory on the Genie and Demag acquisitions.

Third, operating losses of $2m for businesses that we are in the process of selling or phasing down.

Fourth, a valuation adjustment of $2.3m in our investment in SDC, given the decline in their share value.

Fifth, a one-time financial advisors fee of $2.4m related to the formation of Terex Financial Services.

And, lastly, we had a further favorable ruling on a legal claim, which contributed a positive $1m.

Net sales for the fourth quarter of 2002 were $847.1m, excluding special items, compared to $439.4m during the fourth quarter of 2001, an increase of 93%. The acquired companies drove the sales growth in the quarter. When we exclude the impact of the acquisitions, net sales increased 6% in the fourth quarter compared to the fourth quarter of 2001, primarily due to mobile telescopic cranes, lattice boom cranes, the Powerscreen group, and these were partially offset by reductions in Mining and Roadbuilding.

Gross profit, excluding special items, increased to $115.6m for the fourth quarter of '02, from $73.6m for the fourth quarter of 2001, reflecting the impact of the acquisitions. Gross margin declined roughly 4% over the prior year on the base businesses largely due to the service contract issues and inventory write-downs in the Mining group and under-absorption in manufacturing facilities temporarily idle to balance our inventory levels.

SG&A expenses, excluding special items, increased to $85.8m from $48.3m for the fourth quarter of 2001. Overall, this achieves a level of 10% of sales, down 1 percentage point from 2001. Excluding the impact from acquisitions, S&A expenses were maintained at the 10% of sales level year-over-year.

Operating profit, excluding special items, increased to $29.8m from $25.3m in the fourth quarter of 2001. Again, excluding the impact of acquisitions, operating profit was $8.1m or 1.9% of sales compared to 5.7% operating margin in the fourth quarter of 2001. This deterioration is due to the Mining and under-absorption performance mentioned previously, as well as provisions required for certain accounts receivable items.

Net sales, excluding special items, for the full year 2002 increased 53% to $2.784b from $1.8b in 2001. The growth for the year was attributed primarily to the acquisitions as the base businesses increased 1% year-over-year.

Operating profit, excluding special items, increased to $156.6m from $138.6m in 2001, but margins decreased to 5.6% of sales compared to 7.6% of sales in 2001, reflecting the impact of the acquired companies. Excluding acquisitions, operating margin was 6.4% compared to 7.9% in the prior year, largely due to the fourth quarter performance items we mentioned earlier.

Our total pretax charges associated with restructuring activities for the full year 2002 was approximately $64m. We discussed the details relating the $54m in our January conference call, and we remain confident that we will achieve the $12m in pretax cost savings for 2003 related to those activities.

I'd like to comment on the restructuring activities initiated earlier in 2002. We completed the closure of the Tulsa Mining Manufacturing facility and the transfer of production to a third-party contract manufacturer. We shipped the first mining trucks from this supplier in the third quarter, and we are on track to achieve $3-5m in cost savings in 2003. We consolidated manufacturing capacity in Light Construction because to our location in Rock Hill, South Carolina, and begun to reap the benefits with more than $2m in savings expected in 2003. Further actions in restructuring in Roadbuilding were to moderate headcount reductions related to the volume declines experienced in that end market.

Cash flow from operations was $70m in 2002, approximately $62m was generated in the fourth quarter. Free cash flow for 2002, defined as cash flow from operations less capital expenditures, was $41m for the year and the fourth quarter was approximately $39m of that.

As a percentage of annualized sales, net working capital is now 34%, compared to 36% at the end of the third quarter. While we have achieved some progress in the fourth quarter, this area continues to be a prime focus in 2003. Our 2003 goal is to reduce to a level below 30% of revenues and yield a further $150m in cash.

Net debt at the end of 2002 decreased $88.1m to a $1.209b from the $1.297b at the end of the third quarter, primarily due to the working capital reductions in certain asset sales. Net debt to book capitalization at year end is 61.1% compared to 57.5% in 2001 and, as Ron mentioned, adjusting for the FAS 141 and 142 adoption in '02, the ratio would be very close to the same. We had a ratio of 62.7 in the third quarter of this year.

In the fourth quarter, book equity was flat relative to the third quarter in total. However, favorably impacted by a translation gain of $41.5m, which was partially offset by $26.8m pension liability adjustment based on our plans in the U.S. Our weighted average interest rate on total debt was 6.3% at the end of the fourth quarter from 6.2% at the end of the third quarter. We remain well within our bank covenant compliance limits, and our consolidated leverage ratio, calculated in accordance with the bank credit facility agreement, was below 4.0 at December 31, 2002.

Ron, back to you.

Thanks, Phil, and now let me give you a review of our business by sector, the five sectors that we report.

First, Terex Construction. Revenues for the Terex Construction segment were $278m for the quarter, or about 65% ahead of prior-year, due mainly to the acquisitions of Atlas and Schaeff. Without acquisitions the base business grew 7% and for the full year the base business grew 8% with acquisitions overall, the Terex Construction business was up an impressive 63%.

In the quarter, operating profit was $14m, or 5% of revenue compared with $8.7m, or 5.2% of revenue in 2001. Operating profit was reduced in the quarter by the Terex Equipment Limited truck factory under-absorption to reduce inventories, added provisions for doubtful accounts. These combined to reduce income in the quarter in the range of about $6m pretax.

Several items are noteworthy in the Construction sector. First the model changeover to our new Terex articulated range of 25-30 tons. This went smoothly. As previously communicated, these trucks deliver superior value to customers and are getting good acceptance in the early part of 2003.

Secondly, the Schaeff acquisition is on track or better than expected and between the Schaeff mini- and midi-excavators, the wheel loaders from Schaeff, Terex loader backhoes formerly from Fermec, and the Terex telehandlers from the Etel Machina acquisition a few years back, we have a highly competitive compact equipment range, and this is getting excellent reviews and traction in both Europe and North America. As you know, we have opened up the Coventry factory to be a core factory for the Benford product line and expect that to be our center point for our compact equipment business. This is a brand-new factory that is just getting started in the United Kingdom.

Atlas broke even during the quarter but continues to need work lowering the cost of components and materials. We have major projects underway that are helping and will result in a more positive 2003. Nevertheless, we are getting value from a better distribution network in Germany, which was a primary goal for the company at large. Germany, as a reminder, is the number-one construction equipment market in Europe, where we were quite under-represented until we recently made the Atlas and Schaeff acquisitions and then, later on, Demag.

The outlook for the construction sector overall remains as we expected and presented in the January conference call. For the full year 2003 we expect to be between $1.150-1.250b in revenue, and operating profit to be in the range of 6-7% of revenue. Longer term, the goal here is a 10% operating profit.

Moving to Terex Cranes. Net sales for the quarter was $267m or about three times the level of 2001, reflecting the addition of Demag. The base business grew 30% versus the prior year, but this is not a performance we expect will be repeated near term. We benefited from an unusually low year-ago North American level, the strong boom truck businesses, as competitors were undergoing ownership changes and a very good Italian hydraulic crane performance.

For the full year, business was $700m, or 48% ahead of the prior year. Overall, the base business did grow 7% for the year, most of the growth came from boom trucks and the U.S. Marine Corps order that will not be repeated in 2003.

Operating profit for the quarter was $7.3m, or 2.7% of revenue compared with $3.4m, or 3.8% of revenue last year. In addition to the effects of acquisitions and the current challenging crane environment, we also wrote down certain accounts receivables and miscellaneous items in this base business. This represented about $3m in impact during the quarter. Operating profit for the full year was $39m, or 5.6% of revenue, up from $34.7m in 2001, or 7.3% of revenue.

The main event for Terex Cranes has been and will continue to be the Demag acquisition. This has given us revenue punch, although margins are challenging. We are on track or ahead of cost reduction initiatives, and the balance sheet has real potential as the most recent performance in our generation of $60m of cash since acquisition. As a reminder, we paid $160m for the business.

The North American crane market remains the most depressed, as we expect double-digit declines again in 2003, as many customers are financially unstable and creating an overhang in this market. So in the context of this business overall, we see revenue for 2003 in the range of $700-750m, an operating profit in the range of 6-7%. Longer term, this business should have a margin of 10%, but this may be 18-24 months away.

The Terex Roadbuilding and Utility business had revenue for the quarter of $136.8m, up 29% from 2001. Improvements came from acquisitions as the base business declined 9%. Parts of the Roadbuilding business were actually down over 20% in the quarter, such as CMI, and despite this very significant revenue decline, we were able to deliver a modest operating profit due to the cost controls put in place.

Operating profit for the quarter was $6.6m, or 4.8% of revenue compared with $7.1m, or 7.4% of revenue in 2001 for this segment overall. For the full year, revenue was $562m, or 54% ahead of 2001, reflecting the acquired company gains. Excluding acquisitions, revenue was off 15%. For the full year, operating profit was $35.4m, or 6.3% of revenue for the full year compared with $28.1m, or 7.7% of revenue in 2001.

This business and Roadbuilding products, in particular, have suffered most from the reduction in Federal, State, and Local spending. We expect this to continue near term. However, offsetting this somewhat, are some positive developments in this sector. First, a small victory, perhaps, but in this challenging environment the CMI operating profit for the full year was about 3.5% of revenue. This, despite declines of 25-30% from vicious competitive pricing, and we do not have a used asphalt plant problem with excess inventory in our yard.

Secondly, the Advance Mixer team has been an excellent addition to the company since we purchased this business in April. They have contributed over $6.5m in cash. Next, Cedarapids dealer inventories are down, and we are in better shape than we have been in a long time. As Phil mentioned, the Light Construction business has been restructured and is ahead of expectations.

And, finally, the Utility products team is doing well and on target as we are providing a full-service product offering to investor-owned utilities and utility companies in general, and we think the ownership of a distribution network will position us as a strong player in this sector.

So as we look at 2003, we see revenue in the range of $600-675m overall and operating profit in the 6-7% level. Longer term, operating profit from this business should be in the 10% range.

Terex Aerials. We are on track or ahead of our plan with Genie. In the fourth quarter, Genie added $6.8m of operating profit on $96m of revenue, or a 7.1% margin. Typically, this is the slowest quarter of the year for Genie. The cost-reduction targets have been achieved or exceeded, and the integration with Terex is going well.

We believe Genie will provide an excellent platform to sell more Terex products to the rental channel, as Genie provides a standard of service that is superior to anybody in the industry, at least that's our belief. The opportunity for rational competition is certainly in front of us in the aerial work platform business, and we are actively participating with this mentality.

Genie has an exceptional lean manufacturing philosophy that we plan to learn from at Terex. Terex has a strong cost focus that is helping Genie. Combined, we are managing this business for cash. The outlook for 2003 is revenue of $475-510m and an operating margin of 9-10%. We expect revenue to be a challenge all year long, with the industry down around 10%. Longer term, the operating margin for this business can be over 12%.

Terex Mining. Revenue for the quarter was $74.7m, or down 9.7% from a year-ago. Virtually all of this came from the Surface Truck business. More importantly, however, Mining had an operating loss of $3.4m compared with the year-ago operating profit of $2.4m, or a delta of $5.8m, or approximately 8 cents per share in the quarter alone. Operating profit in the quarter was negatively affected by excess service contract issues and inventory write-downs. These issues were resolved in the quarter and represent approximately $6m of negative variances.

Net sales for the full year was $282.9m, or a 6% increase. The increase all comes from our O&K Hydraulic Shovels. Operating profit for the full year was a dismal $2.4m compared with $18.4m in the prior year. As you know, during the year we relocated the production of the unit rig trucks, shut the Tulsa factory, and resolved a number of the service-related issues that are not repetitive in 2003. The backlog for 2003 is better than 2002, as it is up $25m from year-end and $31m from a year ago. We believe 2003 revenues will be in the range of $250-280m, and the operating profit from this restructured business to be in the 6.5-7.5% range.

So the overall outlook for Terex is this. First, we want to confirm our belief that we can meet or beat full-year 2003 First Call estimates. 2003 will be a year of managing for cash and managing to fundamentals so we can deliver the Terex franchise on a stronger basis for future growth in 2004 and beyond. We expect the first quarter performance to be in the 20-25% better basis on an earnings per share measurement than 2002, although we always need a strong March to achieve this. We expect the first half of 2003 to represent around 55% of full-year earnings. We do not expect any help from the markets, and we cannot predict the effects of a war. We have improved many parts of Terex and expect our performance to be superior to the 2002 levels and to meet the expectations that are currently on the street.

With that, I'd like to open it up for questions.

Thank you, and once again I would like to remind everyone, if you would like to ask a question, please press star and then the number 1 on your telephone keypad. We'll pause for just a moment to compile the q-and-a roster.

We'll take your first question from Aaron Ravenscroft with Janney Montgomery Scott.

Hi, gentlemen.

Hi, Aaron.

Hi, Aaron.

If we're looking at the accounts payable on a days-cost-sales basis, what are you doing to stretch them so successfully and is it sustainable?

The biggest impact here, frankly, one of the Demag issues, was the terms on acquisition. They had a fairly accelerated payable level, and we've been able to successfully move a lot of those out. So that's probably, dollar-wise, one of the biggest issues. And I'd say it has been a reasonable expectation for total Terex to be at the levels that we've been at, over time. But Demag, for the quarter, was the one that will be sustainable, in particular, and added the biggest result.

Okay, and as a follow-up, looking at the $150m improvement in working capital. Is that heavily weighted to inventories or accounts receivable? Is there any one area that will be stronger? And on the inventory, how are your initiatives coming and, as outsiders, what can you tell us that you're doing to really yield those benefits?

I would say, for this year, I don't expect a lot of help from payables year-over-year. Receivables, we continue to push, but I think the most dramatic impact will be on inventory. As we go through and scrutinize what we have, how we can sell it, why we need, let's say, excess in certain areas, that's the most significant opportunity, given the value is about $1.1b at the end of the year there. We're looking at several things, let me go through some specifics. I'll call it the "sales and production planning linkage." As opposed to building to an optimistic sales schedule, we've put together our '03 plan, not assuming end-market help, and that puts pressure on us. If the order intake improves, the scramble to meet objectives as opposed to the other way around, which may have been some of our historical tendencies.

We're looking at our dealer inventories in certain areas, as well, and balancing those with our production capacity to make sure that we're looking at all opportunities to fulfill orders, not just always building new production. Significant attention on used equipment in terms of valuations and converting it to cash. Typically, I'll call it the "slow-moving" or more difficult stuff tends to sit around, and we're taking action to make sure that goes out the door and turns into cash quickly.

From a process standpoint, Ron mentioned Genie is our best-practice leader in terms of manufacturing process and lean manufacturing. We are conducting some sharing instruction this month, in fact, with some of our other businesses, and injecting outside talent in certain areas, as well, to improve our manufacturing process flow and supply chain management in terms of balancing the incoming material as well as our production schedules. So I think you'll see the most dramatic effect on inventory as we go through the year.

Unfortunately, given the level of our business activity from March to July, we may see some of the savings offset by the build in volume that we have during that period. So I think you see most of the inventory reduction in the third- and fourth-quarter levels.

And is there any opportunity on the replacement parts that you have?

Trying to be more efficient, I think, that's an area of logistics we're looking at. A lot of our parts inventory is in the Mining business, which is tied up in remote locations oftentimes, but we are looking at utilization, order patterns, and so on. But I would say it's going to come mainly from, I'll call it our "equipment production" in terms of the value.

Okay, thank you very much, that was very helpful.

Thank you. Next question.

Your next question comes from John McGinty with CSFB.

Good morning. Ron, could you talk to the Mining? In other words, what happened in the excess -- what did happen -- how much of the 8 cents was the service cost versus the receivables write-down and is it gone or could you give us a little bit more color there?

Yeah, there's no receivables in Mining. The receivables were in the other two areas -- cranes and [inaudible] --

[crosstalk]

-- I thought you said there was a write-down of something in addition to excess service?

Inventory.

Okay.

Inventory, John. What we addressed in Mining was really a reflection of the current state of affairs in the industry and some of the open questions and disputes we had regarding service issues with certain customers. Those take a while to develop. Obviously, when you're managing large pieces of machinery with large customers, there can be different views of things, and we had a few service contracts, as you know. There are mark contracts in the industry that are commonplace, and we dealt with those, got those behind us in the fourth quarter, and they flowed through current performance.

So it's totally gone?

Well, contingent liabilities in the Mining industry are never totally gone, but we think the biggest issues we had are dealt with, and Phil mentioned the other one.

Well, John, the other issue is that, as we work through our large Coal India truck contract, the warranty period there in the September timeframe, we got through half the warranty period on the 150 trucks. The remaining warranty expires April of 2003, and that was part of the issues, as well, dealing with the warranty issues on a very large contract like that in a remote area.

You've now provided for that, or there is a further risk for it before April '03?

Oh, we've provided, based on our expectations of between now and April what may still be need to be resolved. Again, that wasn't the most significant part of the total, but it was a contributing factor to our overall year warranty charge.

I think, for the most part, we can say a lot of the issues that needed to be dealt with in Mining were dealt with in the fourth quarter.

And as the follow-up, just to reconcile, you initially said in talking about the three disappointments, if I wrote this down correctly, that Atlas, CMI, and Mining each cost you 15 to 20 cents for the year?

Correct.

And yet -- that's fine -- I mean -- okay, great -- but getting over to Mining, you talked about these issues costing you 8 cents. So the question that I just want to make sure I catch is where is the other 7-12 cents?

Well, 8 cents in the quarter.

Right.

8 cents in the quarter, and there were -- such as the item Phil mentioned of Coal India -- that was something that we were addressing all year long, and there are several other issues that we were addressing all year long. Mining performance was down to $2.4m of operating profit from $18m. A large portion of that had to do with dealing with service and customer contract issues and the Coal India warranty all year long.

All I'm trying to understand is do I get back 8 cents next year, or do I get back 15-20 cents next year?

You'll get back the range that we gave you, which is $250-280m of revenue, and a 6.5&-7.5% operating profit.

All right, thanks very much.

Okay.

Your next question comes from Tom Klempke (ph) with CSFB.

On the balance sheet, two questions. Can you give us the breakout of the debt including the Genie portion?

And then also you guys took a fair amount of restructuring reserves and asset write-downs and all that during the year. If you talk about what kind of reserves you have remaining on your balance sheet as of year-end and what the reserve activity was, I guess, during the year?

Okay, let me address the debt issue. The total debt of $1.563b, Genie is $72.7m, Term B is $373.1m, Term C, $209.5m, the revolver was $54m, the notes, the 8 and 7/8, $246.2m, the 10 and 3/8 was $300m, the 9.25 was 200, other debt, which would be like other capital leases and so on, about $81 million, and then the FAS 133 adjustment, $25.9m in terms of the total.

Does the full amount of the Genie debt count against your bank covenants or is it just a recourse portion?

Just the recourse portion. That's the issue between what's on the balance sheet versus what’s in the bank agreement.

Okay -- and then the reserve issue?

Restructuring charges during the year in terms of cash utilization, I think, was about $10m for full year 2002, and, I'm sorry refresh my memory on the ending question.

What are you actual reserve balances as of 12/31, or has everything been fleshed out or is there a remaining reserve? I would imagine the fourth quarter reserve, anyway, is still on the balance sheet.

Yeah, we're still at about $95m in terms of including the fourth quarter of the balance sheet.

Okay, and will that get used substantially all during 2003, or how does that kind of flow through?

Most of it would be in 2003.

Okay, and the cash impact of all those charges that we're going to see in 2003 is how much now?

Just a second, let me look through. Yeah, we've kind of talked about $20m in expectation there.

All the programs.

Yeah, of $20m usage.

In '03, good. Very good, thank you.

Your next question comes from David Raso with Salomon Smith Barney.

Hi, good morning.

Good morning, David.

Good morning, David.

A simple question on 2002, the weighted average performance of your end markets versus your 1% core growth. What was the weighted average performance of the industries you're in?

And also, for '03, where do you expect to continue to outperform or perform in line? What are the areas you're looking for that outperform?

I would say our weighted average end markets were down 10%. That's an eyeball estimate on my part, frankly, reflecting a Crane business down 15% to 20% in North America probably 7% to 10%. Globally, the North American businesses that were in the Compact Equipment, Backhoe business was down nearly 20% year-over-year in 2002, et cetera, et cetera. So I would say somewhere around 10% decline juxtaposed to our 1% revenue increase, and my view for 2003 is flat to a 5% decline.

For the industries you're in. Where are the areas you have opportunities still? Or what has run its course on products recently acquired that you were able to somewhat pipeline fill into new geographies or existing dealers who had never carried the product before? I'm just trying to get a feel for true core activity and how much is pipeline fill of things you recently acquired.

Well, David, we don't do a whole hell of a lot of pipeline fill. You pipeline fill when you have a captive finance company, and then you can finance the dealer through floor planning, okay?

Well, I was thinking less the dealer network, more the idea of product, like Atlas and Schaeff, being brought into the U.S. or the way Fermec's been brought into the U.S.

Well, Fermec's been brought into the U.S. almost all of the product has gone directly to end users, okay? We have some distribution inventory, but a lot of it has gone to the end users and put in the ground to rent and, frankly, we see that as an opportunity for growth. The Loader Backhoe business, I expect 30-40% growth in that product category in North America, despite a challenging market. I expect 15-20% growth from the Schaeff products in the United States year-over-year. I expect 10-15% growth in the United Kingdom, an important market for us in those products. I think there are opportunities there.

In the Utility products category, I think, in a down market, I expect our business to be flat if not up a little bit. And the Crane business, I think I commented on the North American Crane business. I expect our North American business to be down double digits. The Roadbuilding business, my expectation there is we're going to bounce along the bottom for a little while. I don't see a lot of additional declines, but I don't see a lot of additional growth, and our improvements will come from things like the Advance Mixer, that's a new company that continues to grow and continues to get additional market penetration and is nicely profitable. Solidification of the Light Construction business, which, albeit small, will be a good net profit contributor to the company.

And then, of course, we have Genie, and Genie will not see a lot of growth in the end markets. In fact, we're estimating about a 10% decline from the end markets, but the cost reduction initiatives as well as the overall efficiency of the operation we think will add pretty substantially to the company's bottom line.

That's what I was looking for, so Atlas, Schaeff, UK, and also Loader Backhoe still has some opportunity for outperforming the industry.

And the last question in that regard, year-over-year, Powerscreen has been one of your best performers now for -- how many quarters -- six, seven quarters -- where are we in that market for '03 on the year-over-year comparison for the industry and also for Powerscreen? I know it's benefiting from some of the mix issues in the industry, but can you give some --

My sense of that is we're expecting year-over-year flat performance there. Perhaps, we'll be positively surprised. Colin, do you want to comment on that?

Yes, there is still, in pretty much all of the markets, positive signs towards continued move towards mobile screening and mobile crushing plant and, indeed, as we work through the first three, four months, we have had already a series of dealer base in some of our plants. Our next two are scheduled for March month, and we are fairly confident that we can sustain at least single-digit growth through 2003.

That's great. Thank you very much, I appreciate it, Ron.

Okay, David.

Your next question comes from Larry Peck (ph) with Copper Beech (ph) Capital.

Hi. I just wanted to ask about in terms of the competitive pricing environment, and I know this is kind of a broad-brush question, because there are so many different product lines. But can you just talk about how you see the inventory channels not only -- you talked about Terex, but maybe amongst a competitive environment and maybe how pricing is holding up?

Okay, I'll answer that, and then I'm going to ask Bob Wilkerson to just comment on it from his perspective relative to Genie, but overall there seems to be a stabilization in pricing, at least that's our near-term view. We're seeing Caterpillar try to exercise some leadership and taking some prices up and several of the other players also attempting to follow. We think those are good things for our business. We've seen used equipment begin to stabilize in terms of its pricing. That's an important measure. So Terex has historically been the value provider, but we think, with the leadership of Caterpillar and others, it will create a good umbrella overall.

In the Aerial Work Platform business is a little bit different, and we've got a lot of cost-reduction efforts there, but, Bob, do you want to comment on that?

Okay, maybe Bob is not -- his microphone isn't open, I'm sorry. Bob? Okay, well

Okay, I'll just say that I think there is going to be a little bit of pricing pressure in the Aerial Work Platform business, but since the industry has consolidated pretty dramatically, we expect that to have bottomed out and stabilized.

Your next question is a follow-up from John McGinty with CSFB.

Ron, I just wanted to catch up on a couple of things. The Construction Equipment margins of 6-7%. What does Atlas have to do in order for you to get to that level? In other words, you said they essentially broke even in the fourth quarter. Are we talking about them having to get up to a 5% or 6% operating margin? Or what do you need?

No, we need them to basically break even.

That's all?

Yeah, and if you look at the fourth quarter, remember, I said that we did $14m of operating profit in the fourth quarter, but we had about $6m of items such as Telelect, et cetera, you add that back, and it's $20m and you’re at the 7% operating profit.

So all we have to do is keep Atlas breakeven there?

I wouldn't say that's all we had --

No, no, I didn't mean to say that it was easy, I didn't mean to diminish it, but if you had said you had to get Atlas to 6% or 7%, I would be a little bit more leery.

Right, right.

In a similar vein, if we go over to Road and Utility. The CMI, what does that have to earn to get to the 6-7%? Do you actually have to earn -- I mean -- you earned 3.5%, which is pretty phenomenal. I don't think that business has ever earned 3.5%.

On a 25-30% revenue decline, I think what we're after is somewhere in the 4-5% range.

And you mentioned a comment that you said you have no excess inventories of used batch plants. Now, if you say that, that typically would lead me to believe that somebody else must be sitting on a bunch of them. Is that what you're implying?

John, you can take that comment for what it was intended.

Okay, but doesn't that make it a bit difficult for them to do what they're doing if you have to worry about discounting or whatever else you ever want to talk about?

Eventually, all bad business practices come home to roost, let's say it that way.

All right, and then the final issue is how in the world, with the Hydraulic Crane business down double-digit, and the marine contract gone, the boom truck ownership issue at least resolved, at least we know who owns them now, how do you, with that kind of a really ugly marketplace, get a 6% or 7% operating margin with your core business there? Demag improves, but your core Hydraulic Crane is down another 10 or -- well -- double digits. So could you just run through that?

Well, we've got a lot of cost-savings projects underway as a result of Demag and some of our other businesses that will help improve our operations. You know the famous question of what is the PPM facility going to look like in the future? That's a changed facility in the future because of Demag. What's Peiner going to look like? That's a changed operation because of Demag. We expect the Bendini Crane business in Italy to continue to be strong as well as the Comedil Tower Crane business in Italy and in some other markets to continue to be strong. So I think we need to get to about a 5% operating margin from the Demag business and feel we can be within that range, and that's our plan, and I think this is one of our biggest challenge areas for the year.

But I'm pretty positive we've got a pretty good range. The $700m of revenue is a pretty substantial reduction in revenue year-over-year so I think this is a challenge, but I think it's a challenge that I think we can achieve. And in addition to that, I think there's a lot of cash that can be generated from this business.

Just one follow-up -- Mobile Hydraulics in the States -- did they make money -- what kind of a margin did they make in '02? And do you see that going down in '03 or holding the same?

I think, from recollection, we made a margin in Mobile Cranes in the States of around 5%, 6%, and I see that going down a little bit.

And it's still doing the 6% or 7% that you forecast?

Yes.

Thanks very much.

Your next question comes from Brent Wilson (ph) with Merrill Lynch.

Sorry about that, I had you on mute. I just wanted to ask about pension, and I apologize if you mentioned it earlier. I didn't hear anything on pension. Could you give us a general sense as to what your funding status is, as well as what income or expense that's embedded in SG&A for pension? And then if there are any funding requirements in '03 or would you expect, maybe, some in '04?

The cash requirement in terms of what's going into our pension plan is only a couple of million dollars. The P&L year-over-year, and these are related to our U.S. plans basically, the P&L difference between '02 and '03 is about $3m unfavorable year-over-year. And, again, we don't have pension plans in all of our facilities but minimal exposure.

And your funded status? I think you were about $100m under funded at the end of last year, if my notes are accurate. Give kind of an estimate as to what you think you are now?

We've got to get that. We may have to follow up with you. I have it but not in the room -- we don't have it in the room. Call us. I don't think it's eroded a whole hell of a lot from the last time. Yeah, we were fairly conservative, given the turnover of our liabilities in terms of timing. So we weren't as affected as others. I think the difference is about $20m year-over-year.

Okay, so a 121.50 kind of context, okay. That's great, thank you very much.

Your next question comes from Stephen Volkmann with Morgan Stanley.

Hey, good morning.

Hi, Steve.

Ron, you gave a bunch of margin goals that you characterized as long term, which generally seemed to come out around 10%. For one of them, I think it was Cranes, looking at my note here, you said it may take 18 to 24 months to get there, which, to me, implied that maybe you thought you could get there earlier on the other ones, and I just wanted to push that a little further. When you say "long-term goals," how long? And what type of market scenario has to happen for you to reach those goals?

I think, Steve, it's clearly not in 2003, we know that. So the question for us is what are we thinking about in 2004? And the hard question is do we have a slow recovery or a solid recovery? In a solid recovery, I'd expect to get to those margin targets, except in Cranes, where I expect the recovery to be out, probably, 18 to 24 months.

Any way to sort of quantify a solid recovery?

I think you'll know it when you see it, and we'll know it when we see it as well. I mean, it's more than 1% GDP growth. It's 3-4% growth.

Let me ask it the other way, then. If we don't get any recovery or decline from current levels, can you make further margin improvement in '04, just by what you can control?

Absolutely, absolutely. There is still a lot of opportunity, as I've continue to try and tell people, Terex is still in middle school in terms of our ability to operate these businesses efficiently. We have a lot of facilities, we can reduce the facilities, we can improve the efficiency, and part of it is a function of having growth through acquisition.

Great, thanks very much.

Your next question is a follow-up from Aaron Ravenscroft with Janney Montgomery Scott.

Looking at the AWP business, what drove the strong results in the fourth quarter? Was there any one or two things and did it surprise you guys as well?

It was better than we expected, clearly. Bob, I don't know, are you on the line? It seems like our Seattle contact is not easily on the line here. I think the thing that was the major contributor was the ability to control cost. The guys that Genie jumped on cost savings right away. This is a company that's taken out somewhere from 2,800 people a couple of years ago down to 1,400 people today, okay? So it is a company that's really resized itself for the current market environment.

Okay, and if we could look at the Cranes business. One of your competitors a few weeks ago indicated that the Mobile Hydraulic business seemed to have flattened out in the last couple of months. Are you seeing those trends at all?

No.

And do you think you'll be able to sustain the share gains in boom trucks?

I think we can hold them, yes, I definitely do. But the question for the boom truck business is, what will the overall market do? Because I expect that boom truck market to slow down like the rest of the crane markets.

Okay, thank you very much.

Your next question is a follow-up from John McGinty with CSFB.

Just on the doubtful account write-downs, you didn't quantify it for construction. It was part of the unabsorbed overhead. It was $3m in cranes. I don't remember you guys at least saying that you took doubtful account write-downs before. Maybe you did, and you just didn't talk about it, but could you --

We haven't, John, and this is a combination of a few things. Do you want to comment on that, Phil?

Well, I think the further attention that we're placing on working capital and, certainly, receivables, it tends to really beep on these and ferret out what the issues are, and in terms of, I'll call it a "risk profile" some of the items that's the reason for the provision. It was the dollar value, I think, in total, between the under-absorption was a couple of million dollars in construction. The doubtful accounts were in the $3.5-4m range in construction.

And $3m in cranes?

$3m overall of things in cranes, not just doubtful accounts, and I said in cranes, I referenced doubtful accounts and miscellaneous items.

So what was the total doubtful account write-off?

I would say somewhere around $3m or $4m – No? Bigger than that?

Just a second -- about $5m, John.

Okay, and then if you just -- to get a windage estimate from Phil. Phil, if, at the end of 2003, you hit your goal of $150m out of working capital in addition to what you took out in the fourth quarter, and if '04 were exactly flat with '03, in other words, you got no need to increase volume at all. How much more, as you look at Terex, could you take another $50-75m out in '04 from where you are in '03 on a flat sales basis?

I would expect in that range, yes, we should be able to do that.

Another $50-75m?

Yes. I think, again, it's getting the effect of the process changes embedded in our culture and approach.

And then final question, Ron, are we going to do this for the next six months and get the working capital out, hit the earnings targets, and acquisitions are back-burnered, or where are you?

Acquisitions are clearly back-burnered at this point in time. Our focus is the fundamentals of improving the company's operations, getting the cash out of our balance sheet, reducing the debt, and basically taking money from the debt side of the equation and putting it into the equity side and positioning the company for a stronger environment. We don't expect 2003 to be strong, but we do expect a recovery sometime.

One hopes so.

Right.

Thanks, Ron.

Okay, John. Thank you. I think that's all the questions, Operator.

Yes, sir, that is.

All right. I want to thank everybody in their in Terex today. Please follow up with Kevin, myself, or Phil if you have any additional questions.

Thank you. This concludes today's teleconference. You may now disconnect.